Thursday, March 19, 2009

Methods of Issuing Currency

Various methods have been tried during last hundred years or so to make the system elastic and scientific. Following are some important methods or systems of note issue which were prevalent in different countries of the world in different times:

1. Fixed Fiduciary Reserve System: Under it, currency is issued up to a certain amount without any reserve of gold, but against government securities. However, when currency is needed more than the fixed level it must be backed up by gold penny for penny. This method was adopted by Japan and Norway in early twentieth century.

2. Proportional reserve system: This system calls for a proportionate gold and silver reserve to the total issue of currency. It allows increase or decrease of the ratio as the need be. Due to strong benefits it has become internationally accepted currency-issuing system.

3. Minimum Reserve System: This system was adopted by Holland and the Union of South Africa. This system prescribes merely a minimum percentage of gold reserves against notes and deposits and makes the notes a first charge on all the assets of the central bank.

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